SPX Credit Spread Trader

Tough one to answer in a short number because the distance OTM affects how willing I am to accept a lesser credit. If the strikes were 1210/1220 I would have accepted a smaller credit for the greater cushion.

SPX flexibility allows you to NOT trade at the bid or ask so therefore the fills are rated higher than 5 on that scale. In other words, you NEVER sell at the bid or buy at the ask nor should you ever need to in order to get filled. Many times I can get above the midpoint of the BID and the B/A mid-point in selling a spread and that is good considering the MM we are dealing with. IN that case I bump it up to a 7.

For artisitic styling I give it a 8.


Quote from ChrisM:

And last but not least - in scale 1 to 10 how would you rate importance of good entry/fill in regards to overall strategy performance ?
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Coach:

I'm seriously considering buying an XSP or SPY hedge for my 1345 short. I've never placed such a hedge before. Would you mind refreshing my memory on how you decide between one or the other. Isn't the XSP European style so wouldn't it be preferred if I plan to purchase a bull call spread.

Quote from optioncoach:

I would add the partial hedge today or tomorrow before volatility picked up before the FED meeting. I think I would use 1260 as my hedge strike for a small SPY or XSP position so that if the market does really move lower I can use the profits to help finance or partially offset an adjustment.

The reason I might add it today or tomorow is that I am a few strikes higher than I would have liked to be for the put spreads so since the premium was nice I do not mind giving up $1,000 - $1,500 of it in a partial hedge that could prove useful later on if we break down through 1295 and further on major bad news. I did not get filled on a 126/125 SPY bear put spread yet so if we are up tomorrow I may grab it for $0.10 or less if I can.
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If you are long an option or spread then I am not sure American v. European would matter really. In XSP v. SPY choose the cheapest and tightest spread for the strike you are considering.

Off to do my show....
 
I've been thinking some more about the ratio diagonal spreads approach discussed by Murray. In order to put on the spread for even money or a credit, it seems that the separation between the strikes needs to be fairly wide (30+?)

I'm curious how one would manage risk in a scenario like the October-December timeframe. With SPX around 1180 at the end of October, if one had done a diagonal call spread for breakeven or credit, and wanted to go way OTM, you'd need to choose something like the Nov 1220/Dec 1250.

At November expiration, SPX closed around 1240. Looking at the historic SPX option prices (I've been collecting my own daily data for the last several months), I couldn't find an easy way to adjust where you wouldn't be out a good chunk of change. SPX moved very rapidly higher in that timeframe, and volatility/time weren't enough to compensate.

Any thoughts on when and how one would best adjust in this scenario? From Murray's original post, calendars look quite rosy and I'm wondering if there's something that I'm not seeing. Because during Nov/Dec of last year, I see a possible worst case scenario for calendars which could easily repeat itself when volatility increases in the future.
 
Agreed. But on a bull call there is still a short position that I guess could get exercised, couldn't it.

Quote from optioncoach:

If you are long an option or spread then I am not sure American v. European would matter really. In XSP v. SPY choose the cheapest and tightest spread for the strike you are considering.

Off to do my show....
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It gets exercised and you exercise your long call for the maximum value of the spread before expiration.... therefore it would be quite welcome and not a problem.

Quote from rdemyan:

Agreed. But on a bull call there is still a short position that I guess could get exercised, couldn't it.
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This is for DonnaV,

I read in your earlier post of 3/17/06 about 10 day overbought Oscillator and also 30 day overbought oscillator. Donna, what are these oscillator and where I can find them. Is there any charting website that allows you to check this oscillators.

If you don't mind sharing, what other technical indicators do you use to identify overbought/oversold market conditions.

Thanks for your help.
 
The SPX has hit 1310 each of the last 3 days. Is it a resistance point or just a pause before moving higher? Your guess is as good as mine.

ryan
 
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